Key Milestones, Metrics and Criteria for Venture Capital Investors

At every stage . . . Risks goes down Valuation goes up

STAGE MILESTONE 1 Idea We believe someone will build this product 2 Prototype We can show you key features 3 Product We have data from customers who have used our Minimum Viable Product and given us feedback 4 Customer Trials We have usage metrics from customers who are using our product in production 5 Proven Product Market Fit B2B: We have 10+ paying, referenceable customers Consumer Paid: We have 100+ paying, referenceable customers Consumer Free: We have 100,000+ Monthly Active Users (MAU) "Ideally you want to make large numbers of users love you, but you can't expect to hit that right away. Initially you have to choose between satisfying all the needs of a subset of potential users, or satisfying a subset of the needs of all potential users. Take the first. It's easier to expand userwise than satisfactionwise." - Paul Graham

STAGE MILESTONE 6 Proven Go To Market Model Customer Acquisition Costs (CAC) / Gross Profit Payback < 2 Years 75%+ of salespeople are achieving quota 7 Proven Customer Success Net Renewal Rate > 100% 8 Proven Scalability Gross Margin > 75% 9 Proven Capital Efficiency (Annual Gross Profit x 100)/(Capital Spent) > 100 10 Proven Market Demand Annual Recurring Revenue (ARR) > $5 million

OTHER CRITERIA MILESTONE 11 Proven Traction Annual Recurring Revenue (ARR) Growth > 100% 12 Proven Leadership Team All key roles in place for 12 months and successful; leadership team has proven execution expertise 13 Proven Market Size 5th Year Potential: (1) SaaS: # Customers x ARR/Customer; (2) Marketplaces: # buyers x # Transactions/buyer/year x revenue/transaction x gross margin %; target = $100 million in annual revenue (IPO potential) 14 Proven Customer, Partner & Supplier Diversification No customer, partner or supplier accounts for more than 1% of revenue 15 Product Risk or Market Risk? Product Risk example: Skybox Imaging. We know low cost satellites are very valuable. Question: can we build them? Market Risk example: Pinterest. We know we can build an attractive website. Question: will millions of people use it every day?

OTHER CRITERIA MILESTONE 16 Proven Timing Why now? Example: Uber started soon after smartphones were widely used by passengers and drivers 17 Proven Founder-Product fit How well do the founders understand the customer? Low risk: Founders are building a product for themselves. Examples: Facebook, Salesforce, Twilio. 18 Proven Technical Advantage Company has unique technical expertise or insights. Examples: Google, Palantir. 19 Proven Competitive Advantage Company has unique economic model or advantage. Examples: Amazon (low costs); Zenefits (free software, paid by health insurance commissions); Blue Apron (low costs through economies of scale) 20 Proven Network Effects Value for each customer and supplier increases as more customers and suppliers join. Examples: AirBNB, Shutterstock.

Venture stages, by risk . . . Seed Series A Series B Series C, D, E, F Startup to Product-Market Fit Raise $100k - $2 million Series A Prove revenue model Raise $2 – 8 million Series B Expand revenue Raise $5 – 15 million Series C, D, E, F Grow to $100 million in revenue (more if gross margin is below 70%) Raise $15 – 30+ million Sale or Initial Public Offering (IPO) Raise $75 million +

Venture investors specialize . . . By risk stage By market sector By geography

The best way to reach venture investors Recommendation from one of their portfolio company CEOs To investor who specializes in your stage, sector and geography

Resources re: Startup Legal Documents Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist  by Brad Feld and Jason Mendelson Startup Legal Documents, from Y Combinator https://www.ycombinator.com/documents/